The Illinois House Human Services Committee approved legislation in December to establish a state-funded health insurance exchange. The legislation, advanced by state Rep. Robyn Gabel, D-Chicago, included provisions to cover the costs of the exchange by charging a fee on every health-insurance plan sold through it.
The legislation was not even brought up for a vote on the House floor, however, as concerns over how to pay for the exchange and doubts about the estimated costs grew among both Democrats and Republicans.
“The major drawback to establishing an exchange is cost,” said State Rep. Patti Bellock (R-Hinsdale), who said cost estimates the state Department of Healthcare and Family Services (DHFS) provided to the legislature weren’t reliable.
“We never got good numbers out of DHFS, never felt like we had enough information to understand what the costs were going to be,” Bellock told Health Care News. As a reason for skepticism regarding the exchange’s estimated operating budget, she noted hundreds of thousands more Illinois residents enrolled in Medicaid under its Obamacare expansion than DHFS had predicted.
Fee Wouldn’t Cover Costs
The state of Illinois chose not to establish its own exchange after passage of the Affordable Care Act, instead opting for what is known as a partnership exchange. Under a partnership exchange, the state and federal governments are each responsible for different functions. In the case of Illinois, the federal government runs the online exchange, while the state recommends to the federal government which insurance plans can be sold on the exchange. In addition, the state of Illinois is responsible for marketing, consumer outreach and enrollment assistance to the public.
Because Illinois does not have a state-established exchange, a lawsuit challenging the legality of subsidies for insurance policies sold on federally-established exchanges could mean no subsidies for Illinois residents buying through the exchange. The case, King v. Burwell, is scheduled to be heard by the U.S. Supreme Court in March with a decision expected by June.
To fund the exchange, Gabel’s legislation proposed an assessment of 3.5 percent on health insurance plans sold through it. But the state assumed an exchange with 292,000 members would require an assessment of almost 4.6 percent, well above the 3.5 percent fee in Gabel’s proposal, and Illinois only enrolled 217,000 people last year.
Kristina Rasmussen, vice president of the Illinois Policy Institute, said the 3.5 percent fee would not have brought in enough money to cover the exchange’s operating costs.
“Illinois lawmakers made the right call” in rejecting legislation to create an exchange, Rasmussen said. “It would have taken a roughly 12 percent assessment on health plans in order to pay for the exchange, as well as the current marketing and outreach costs, [before] spending one dime on patient care.”
Costs Soar Above Projections
A 2011 report conducted for Illinois by Wakely Consulting Group estimated the costs of establishing and operating a state-based health insurance exchange as ranging between $32 million and $89 million per year, depending on enrollment levels and assuming modest marketing and enrollment-assistance spending.
Experience has shown those original cost estimates were likely low. For example, the state’s current $26 million contract with FleishmanHillard for marketing the exchange is at least $20 million higher than the original marketing and advertising budget estimate, which ranged from $2 million to $6 million.
The federal government also doled out $36 million to Illinois for exchange navigators last year, far more than the state’s original estimate of $1.5 million to $2.6 million.
“The Wakely estimates are based on scant spending for outreach and marketing,” Rasmussen said. “Today, tens of millions of federal dollars are being spent to drum up enrollment numbers.” She predicts the annual cost of an exchange could easily top $100 million.
For Bellock, the lack of reliable information on what it would cost to operate an exchange in Illinois is one of the biggest drawbacks to the proposal.
“We kept asking for costs on marketing and administration, but we couldn’t get them,” she said. “We can’t get accurate numbers on how much the entire exchange will cost.”
Naomi Lopez ([email protected]) is director of health policy at the Illinois Policy Institute.